EAT Clarifies Whether Stock Options Should Be Considered When Calculating Unfair Dismissal Awards

by Melanie Crowley partner in the Employment & Benefits team at Mason Hayes & Curran

The Employment Appeals Tribunal (“EAT”) recently ordered a cyber security firm (the “Company”) to pay a senior director (the “Employee”) €105,000 as a result of his unfair dismissal. In calculating his compensation, the EAT determined that the Employee’s stock options should be excluded from its assessment of loss.

Background

The Employee was employed by the Company from December 2013 to June 2015. His main responsibility was to establish the Company’s Cork office. He was promoted to the position of senior director in early 2015 as a result of his “exceptional performance”. His salary increased from €75,000 to €96,250. Shortly after, he was also granted an additional 2,000 stock options.

The vesting schedule for the stock options was over a 48 month period. A portion of the shares were to vest at the end of each month with the first month of vesting being January 2015.

The Employee was summarily dismissed in June 2015.

The employer admitted that the Employee had been unfairly dismissed so the issue before the EAT was to determine the most appropriate remedy for the Employee.

Reinstatement rejected

The Employee sought to be reinstated, as he believed the stock options would be of significant value if the employer announced a public offering on the stock market. This was despite the fact that the Employee had obtained new employment three months after being dismissed.

The EAT decided against reinstatement, holding that compensation was the correct remedy in this case.

Stock options a “separate matter”

Having decided that compensation would be awarded to the Employee, the EAT then considered whether the Employee’s stock options should form part of any remuneration when calculating his compensation.

The EAT considered the letter of offer to the Employee, his contract of employment and the stock option agreement.

The letter of offer stated that as a “separate matter” to the Employee’s employment, he would be granted the option to acquire 17,500 shares in the employing company at the discretion of its board.  The stock option agreement stated that if the Employee’s stock options vested by the date of his termination of employment, he would be entitled to exercise them for a period of 90 days following that date. The Employee confirmed to the EAT that he had exercised his stock options which had vested by the date of his dismissal.

In its decision, the EAT gave the words “As a separate matter to your employment” their ordinary, literal meaning. It determined that the stock options did not form part of the Employee’s remuneration. The EAT went on to say that unvested stock options at the time of the dismissal “should not and do not form part of the assessment of loss in this case”.

Award

The EAT awarded a total of €105,000 to the Employee. A sum of €83,000 was awarded for the losses the Employee had incurred up to the date of the hearing. He was awarded a further €24,000 for future loss incurred by reason of differences in commission payments.

Conclusion

The EAT’s decision goes some way to giving clarity to the question of whether stock options form part of an Employee’s remuneration package. However, it should, in our view, be considered with caution.

In this case, the EAT gave the “ordinary meaning” to the wording contained in the Employee’s offer letter relating to his stock options. It is important to note that this may not be the determination in every case. In our experience, employers often include the value of stock options as part of an employee’s total compensation package. This is despite what may be provided for in an Employee’s offer letter, employment contract, stock option agreement, share participation scheme or other relevant documentation.

Employers should bear in mind that an employee’s stock options may factor in an award for unfair dismissal. This will depend on a number of aspects including any relevant documentation in place and how the employer itself treats stock options.

About the author
Melanie is a partner on the Employment & Benefits team at Mason, Hayes & Curran. Her diverse practice covers the full spectrum of employment law issues, both for employers and employees, as an advisor to clients on complex non-contentious workplace issues and as an experienced litigator before all employment related fora.
Melanie is the go-to employment lawyer for some of Ireland’s biggest domestic and multi-national companies and employers including the Legal Aid Board, the Health & Safety Authority, Facebook, Twitter, arvato, Activision, Zenimax, Accenture and Western Union.
Melanie has advised many large companies either entering the Irish market for the first time or increasing their market presence and on all matters relating to their workforces, often involving hundreds of employees. She assists clients in drafting bespoke employment contracts, agreements and HR policies and procedures. Melanie also provides on-going support to HR managers in relation to the management of day to day disciplinary issues, the handling of employee related complaints, internal reorganisations and rationalisations, terminations and transfer of undertakings.